InnerWorkings Thinks Small to Get Bigger

Print management company InnerWorkings sees something big in smaller firms in the current economy.

“The hidden gem of growth is inside sales,” which sells to small and midsize businesses over the phone, InnerWorkings Chief Financial Officer Joe Busky told CFO Journal in an interview.

The vast majority of InnerWorkings revenue is concentrated in larger accounts, where it continues to generate strong gains. New enterprise account growth reached a record $29 million in the third quarter, an increase of 18% compared to a year earlier. Mr. Busky described the large-company market as “huge and underpenetrated.”

Still, a year ago the Chicago-based company told its investors it was going to invest 2 to 3 cents of 2012’s earnings to get the inside sales business off the ground. The plan was to take the sales force from 10 employees to about 200.

Kevin Steinke, an analyst with Barrington Research who follows InnerWorkings, said moving to an inside sales strategy is “something that no one has ever really done before in this industry. It’s going to take some time and investment.” He added that the company’s management has so far done a good job “learning and tweaking as they go.”

Mr. Busky admitted the move is “a bit of a risk.”

“A lot of companies were hunkering down and not making investments,” he said. “We saw it as an opportunity to take market share in that area.”

The print business in the U.S. is massive, but fragmented. Mr. Busky said it’s a $150 billion market occupied by 30,000 printers. That’s resulted in overcapacity of between 30-40%, leaving it “ripe for disruption.”

Mr. Busky said the small and midsize print market is $20 billion, but has not been a growth segment for InnerWorkings over the past five years. Now it’s a $20 million business for the company, he said, up from nothing two years ago.

InnerWorkings doesn’t actually print anything. Instead, it uses its data and technology to identify open capacity among the suppliers in its network and funnels its customers’ print jobs to the places with the proper equipment in the right place. Mr. Busky said InnerWorkings can get the job done 20-30% cheaper than its customers could on their own. In turn, the customers see 15-20% savings.

In a low growth economy where CFOs are still looking for places to trim costs, that’s a pretty compelling argument.

Still, the sales cycle can be long since outsourcing often translates into internal cuts. Mr. Busky said sales can be “emotional,” especially for procurement managers who see their turf threatened.

The strategy of targeting smaller businesses has further risks because sales are generated through cold calling. That means InnerWorkings needs to identify the right talent to make the pitch.

Sales reps might be right out of college or on their second or third job. Call center turnover is in the 20-25% range, which makes modeling the business difficult. But Mr. Busky said the company has gotten a lot smarter over the last 12 months in training, weeding out weak candidates and forecasting the business.

“Now we have two and half years [of experience with inside sales], we have a better feel for what an average rep can do in terms of revenue and gross profit and profitability in a given year,” Mr. Busky said.

Content from our sponsorDeloitteCFO insight and analysis written and compiled by Deloitte

Implementing an enterprise risk management (ERM) program can enable federal CFOs to unify and improve their agency’s risk management capability. A comprehensive risk appetite framework can improve an agency’s ERM capabilities in multiple ways, such as helping senior leadership communicate the agency’s risk appetite throughout the organization, prioritizing risks and measuring whether the agency is staying within its risk appetite. Learn how CFOs can develop a risk appetite framework aligned to the agency’s mission and the amount of risk the agency is willing to tolerate to achieve its strategic goals and objectives.

Please note: The Wall Street Journal News Department was not involved in the creation of the content above.More from Deloitte →

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.